HARRISBURG, Penn. - In the latest round of legal skirmishes with between credit unions and banks, a federal court ruled last week that NCUA exceeded its authority when it awarded a broad community charter encompassing much of central Pennsylvania to Members 1st FCU, and later to two additional credit unions.
The community in question consists of six counties and 1.2 million people between the state capital of Harrisburg and the city of York, but is neither the broadest of most populous granted by NCUA. But U.S. Judge Yvette Kane found that the 3,000-mile area which sprawls across three separate metropolitan statistical areas does not meet the Federal CU Act’s definition of community as a “well-defined” area.
The record in Members 1st case, said Judge Kane in her ruling, “contains evidence that supports the agency’s findings: however, it also contains a substantial body of evidence contravening the agency’s finding that the (six-county community) constitutes a well-defined local community. The NCUA’s lopsided decision reflects a certain deafness to the unfavorable evidence in the record.”
“Under all of the circumstances, the decision of the NCUA is arbitrary and capricious and must be set aside,” ruled Judge Kane.
30 Days To Propose A Remedy
Judge Kane has given the parties in the case–the American Bankers Association, NCUA and Members 1st, as well as AmeriChoice FCU and New Cumberland FCU–30 days to suggest a remedy in the situation, which could include an order for the three credit unions to divest of members and branches they may have built in the charter.
Joining the ABA in the suit were three local banks: The Legacy Bank, Adams County National Bank and Mid Penn Bank.
This is just the latest court ruling in Pennsylvania, which has become ground zero for the credit union-bank wars. The state courts, at the urging of the bankers, are also reviewing two broad community charters–even larger than the Members 1st charter–which encompass more than five million people in five counties surrounding Philadelphia. The bankers have used those suits to launch a challenge to the exemption from state taxes for state chartered credit unions.
Robert Marquette, president of Members 1st FCU, based in Mechanicsburg, just south of Harrisburg, said last week they were exploring their options, which could include a return to a multiple group charter that served almost 1,000 select employee groups.
That way the $1.5-billion CU could still utilize the dozen or so branches it opened since then to serve its select groups, at a cost of almost $20 million. “We have all intentions of continuing our expansion, whether it’s under a community charter or a select employee group charter,” said Marquette. He said returning to its SEG charter is one of possibilities the credit union is exploring in response to the court decision.
“There are benefits to being a community charter; there are benefits to being a SEG charter. One of the benefits of being a SEG charter is you can open up branches anywhere, with no geographic boundaries,” said Marquette.
NCUA said it was reviewing the case and had not decided whether to appeal the ruling, by the U.S. District Court for the Middle District of Pennsylvania. An agency spokesman emphasized that the court decision only affected the three Pennsylvania CUs and not its community charter regulations.
This is the fourth time that NCUA has been admonished by a federal court for its field of membership approvals. “We hope that the court’s admonishment will compel the NCUA to be less self-serving in its regulatory oversight,” said Ed Yingling, president of the American Bankers Association. “The ABA remains vigilant and will challenge the agency when necessary to defend the interests of our members.”
Victorious Against Challenges
But NCUA has been victorious as often against the court challenges by the bankers. The court has given the credit unions 30 days to propose a remedy. The American Bankers Association, which brought the suit, could ask for a divestiture of the areas in question. According to Marquette, Members 1st could still use the new branches it built in the expanded field of members to serve the many SEGs. Under NCUA rules, Members 1st had to give up those SEGs when it converted to community charter, but was allowed to retain the members.
“We will continue to open up branches; they are under construction as we speak. We’ve not stopped and we have no intention of stopping,” a defiant Marquette told Credit Union Journal.
Members 1st was chartered in 1950 to serve employees of Mechanicsburg Naval Depot and grew to serve 993 select groups by the time it converted to a community charter in 2003. Since then it has grown from 90,000 members to 142,000 members.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
